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ChangingMinds Blog! > Blog Archive > 23-Jul-08

 


Wednesday 23-July-07

Don't fire your bad customers!

In recent years, it has become received wisdom to get rid of customers who are costing you more to maintain than they bring in with revenue. A typical such customer buys a cheap product but then complains and phones to the extent that any profit is quickly wiped out. For the worst of these this is a pathological behaviour and, whatever you do, it never seems to be enough. In the past ten or twenty years, customer relationship management (CRM) software has allowed firms to identify low and negative value customers and enabled them to be sidelined or even 'fired'. Yet a recent Wharton study has shown that this can be the wrong thing to do.

The bottom line of the research is that if you fire all your lower value customers or even work hard to turn them into good value customers, then your competitors may target you as an easy place to raid for higher-value customers.

Increasing the overall value of your customers, however, cannot be all bad, surely? What the Wharton profs suggest is a two-pronged strategy. First, if your lower-value customers are not ready to trade up, then retain them with simpler services that meet your pocket. Secondly, work hard to deliver value to your higher-value customers to ensure they are not easily tempted away.

There have been some interesting follow-on comments from the Wharton readers, several of whom scoff at this advice, for example noting that low value customers may one day become high value. There are also notes about success in hiking prices, so lower-value customers either pay and stay or leave of their own accord.

In any case, what to do with the bottom end of your customers is a tricky question to which there is not always an easy answer. My counsel would be to get inside their heads, understanding why they are low value (including whether they perceive you as low value) and then figure out a way forward.


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